Inventory management, while largely considered a ‘back of the house’ function, is one of the most important factors impacting the financial health of wholesale and retail businesses. Any inventory based business experiencing significant growth probably has inventory shortcomings simply because their inventory management methods have not kept up with the actual growth of their inventory. Most young companies use a combination of manual and semi-automatic inventory control methods; medium companies may rely on their accounting software as the primary method for managing inventory; and larger companies typically need a sophisticated inventory management and control system.
Migrating from Manual and Excel Methods.
Many small businesses use a combination of paper, pen and Excel to track inventory. Their idea of a central inventory is an Excel spreadsheet that was ‘once correct to the item’, since then it is ‘anybody’s guess.’ “John, run down there to row 23 and tell me how many widgets are on the 2nd shelf…” 3 minutes later the walkie-talkie squawks back, “the widgets aren’t on the 2nd shelf, in fact they are not on row 23”. 5 minutes later, “sorry, my mistake, they are on shelf 3 of row 22”, the only problem is that the even number rows are on the opposite side of the warehouse from the odd numbered rows. The next time this inventory will be accurate is either sometime around the first of the year, or 3 days before the scheduled IRS auditor is arriving.
So what about QuickBooks Inventory?
In theory, if you start with a ‘good inventory’ and load it into QuickBooks you should have an accurate inventory at all times. Remember I said, ‘in theory’. The only thing that keeps QuickBooks inventory straight is ‘the one person’ who is responsible for every single transaction as well as regular physical counts; beyond that QuickBooks is only as good as the data maintained by anyone. For example, QuickBooks permits users to ‘sell negative’; in other words you can sell something that inventory says you do not have ‘on hand’ to sell. How is such a thing possible; because QuickBooks contains no restriction to keep you from selling negative. Why would accounting software permit you to sell negative, because of user demands to the software developer saying things like “I have the part in my hand, I need to be able to sell it….”; or course who knows why the part is on-hand when QuickBooks says the part is not in stock? The answer is simple, because someone forgot to (or improperly did) post an inventory transaction of some type (item receipt, item return, location transfer, something….).
QuickBooks could provide real time tracking of inventory, but only when it is maintained properly; the problem is, it rarely if ever is, in my experience. I cannot report a single instance of checking someone’s inventory items in an Item list and not finding at least one ‘negative’ quantity on hand. So I ask the question, “how can you have quantities in the minus”? The answer is almost always “uh, I don’t know.” Even if every item in Inventory has a positive quantity at present; a review of the history will always, that is what I said, “always” reflect some historical occasion where some item(s) went negative. Without an ‘inventory task master’, QuickBooks inventory is strained at best, and I am not even going to discuss the ‘cost considerations’ of negative inventory upon how QuickBooks computes inventory valuation, that is another ‘nightmare’.
Well isn’t it true that QuickBooks Enterprise now offers Advanced Inventory features?
Yes, a few years back Intuit set-out to re-invent ‘fire’ and started developing a replacement for their prior offering known as QuickBooks Enterprise Warehouse Management (aka: Accucode’s Velocity Inventory), which is now independently offered as a product called ‘Rapid Inventory’. Intuit’s Advanced Inventory team began the new subscription add-on by offering a method to differentiate inventory on a location (site) basis, one sideline of that was to also track inventory in transit (such as drop-ship). A year later new features were added to the Advanced Inventory subscription including Bar-codes, and alternatives to the receiving process completely segregating it from billing. Additional functions of FIFO cost-valuation, serial/lot numbers, bin/shelf/row tracking, and (optionally priced subscription) advanced pricing methods, have also been incorporated.
The problem is, despite all this sophistication, the underlying inventory engine is still QuickBooks, and the underlying methods of inventory control are still QuickBooks; and that means that even with Advanced Inventory in place, inventory values can still be skewed by ‘going negative’. There is nothing in Advanced Inventory that mandates ‘correct’ inventory; it simply provides more methods for inventory to actually be wrong. For example, if Warehouse 2, Row 6, Shelf 2, Bin 9 is where widgets have always been stored, and 5000 widgets arrive and are posted to that location, what happens if Bin 9 is only physically capable of holding 2000 widgets? The result is that inventory is wrong, but in a different way because nobody knows where the other 3000 widgets actually are (well at least inside QuickBooks they don’t know.) There is nothing that actually tracks physical locations to inventory capabilities. While Advanced Inventory offers modest reporting, it is still severely lacking in inventory analytics that are needed for inventory heavy operations; for example there is no Inventory Hot List to maximize inventory efficiency by forecasting inventory demands or excess by considering lead times as well as purchasing options allowing buyers to determine time forecast inventory size and inventory purchase dates.
My opinion is that Advanced Inventory "really isn’t very advanced at all", it is just an expanded feature set of nuts and bolts that don’t necessarily accomplish inventory management. For example the ability to scan a barcode onto an invoice in the same manner an item is scanned in QuickBooks Point-of-sale, or look at a list of available lot numbers on a pick-list at the bottom of a pile of 5000, isn’t really my idea of inventory management. Where is the ability to pick based upon expiration dates, serial number confirmation, or actual stored order; it doesn’t exist. For some small warehouses perhaps QuickBooks Enterprise Advanced Inventory works; but larger inventory operations need sophisticated systems using mobile computers providing the details of the inventory process to workers actually responsible for receiving, put-away, picking, packaging, shipping, and delivery of inventory within the specific ‘restricted’ confines dictated by the inventory management system.
So what comes next?
In our next article on this topic we will explore the various types of inventory management systems that are available to work with QuickBooks. Some of these products work by removing all inventory related functions and post financial details back to QuickBooks based upon the transactions processed in those products. Other products expand or enhance QuickBooks functionality in various ways, and yet allow for various degrees of integration that permit QuickBooks users to maintain basic control within QuickBooks while relying on the add-on/in to provide an wealth of capabilities not otherwise available. Over the weeks to come, we will look more closely at these products, always comparing and contrasting them with QuickBooks. Our ultimate goal will be to provide a side-by-side comparison of these products and their features. We look forward to your reviews and comments.